2017 (11) TMI 1430 - AT - Service Tax

Franchise service - reverse charge mechanism - whether the appellant satisfy the fourth condition stipulated in the definition of Franchise service as it stood at the relevant period or otherwise? - Held that - the period involved is prior to 18.4.2006 on which date Section 66A came to be introduced in the Finance Act, 1994 - for the period from 01.-07.03 to 15.06.2005 the law laid down by the Indian Ship-owners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , will prevail, since the appellants have paid the franchisee fee to the foreign franchisor, hence no tax liability will arise for that period - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Liability to pay service tax under reverse charge mechanism.
2. Interpretation of the definition of Franchise service.
3. Applicability of judgments regarding service tax liability on payments to foreign franchisors.

Analysis:

Issue 1: Liability to pay service tax under reverse charge mechanism
The appellant argued that the liability to pay service tax under reverse charge mechanism arose only after the insertion of Section 66A under the Finance Act, 1994. They relied on the judgment in the case of Indian National Shipowners Association, where it was held that the liability crystallized post the mentioned amendment. The appellant requested the impugned order to be set aside based on this argument.

Issue 2: Interpretation of the definition of Franchise service
The main issue for determination was whether the appellant satisfied the conditions specified in the definition of Franchise service during the relevant period. The definition of Franchise service included various criteria such as representational rights, provision of business concepts, payment of fees, and non-engagement in similar activities by the franchisee. The Tribunal analyzed the provisions of the definition and the facts of the case to determine the applicability of the Franchise service definition to the appellant's business.

Issue 3: Applicability of judgments regarding service tax liability on payments to foreign franchisors
The Tribunal considered the judgments in the case of Indian National Shipowners Association and subsequent decisions by the Hon'ble Supreme Court regarding the liability of service tax on payments made to foreign franchisors. It was noted that the law laid down in these judgments was applicable to the period in question, and based on the principles established in those cases, the Tribunal ruled in favor of the appellant. As a result, the impugned order was set aside, and the appeal was allowed with consequential relief as per the law.

In conclusion, the Tribunal's decision was based on the interpretation of the relevant legal provisions, previous judgments, and the specific facts of the case regarding the liability to pay service tax under the Franchise service agreement. The appellant's arguments regarding the timing of the liability under the reverse charge mechanism and the applicability of the Franchise service definition were crucial in determining the outcome of the appeal.